If a church operates in South Africa, it has to pay taxes to the South African Revenue Service (SARS). Similarly, everyone (including foreign pastors) who earns an income (and are therefore not merely volunteering) from a South African source (i.e. a church in South Africa) will also have to pay tax to SARS.
Tax on Tithes:
It is important to know that churches are not automatically exempt from paying taxes on the tithes and other donations the church receives. In terms of the Income Tax Act, 1962 a church is liable to pay tax on all these, and other monies received, unless the church is tax exempt.
Tax exemption is something that the church has to apply for with SARS’ tax exemption unit. One of the forms of tax exemption available is to have PBO (public benefit organisation) status with SARS in terms of the Income Tax Act. (Note that it is not correct that PBOs are not allowed to make any profit at all. The Income Tax Act does allow a certain threshold profit for PBOs.)
It is often assumed that because an organisation is tax-exempt, it also has the power to issue tax-deduction certificates to their donors under section 18A of the Income Tax Act. This is incorrect: tax exemption and section 18A status are not the same. Without going into great detail here, in order to qualify for section 18A status, an organisation’s founding document needs to include a clear objective that is aligned with the approved public benefit activities outlined in the Ninth Schedule of the Income Tax Act. There are a range of conditions to receiving this status, including a requirement that PBOs cannot (directly or indirectly) use their resources to support a political party.
In the event that a church consists of many individually registered congregations – i.e. separately registered as different legal entities – each congregation will be liable to pay tax individually.
Tax on pastor’s salary:
Pastors, like every other person living and working in South Africa who earns enough to qualify as a tax payer, must pay amongst other things income tax (PAYE) and contribute towards the Unemployment Insurance Fund (UIF). This applies also to pastors who are foreign nationals who work for a church and live in South Africa. Should a pastor misrepresent his/her annual income to SARS, he/she becomes liable to pay not only the tax he/she rightfully owes, but also a penalty, because the Tax Administration Act, 2011 allows for SARS to impose penalties for various forms of tax offences and understatements (e.g. misrepresentation made in your tax return). If the pastor is guilty of intentional tax evasion, this penalty can be up to 200% of the difference between the correct amount of tax he/she should have paid, and the amount of tax the pastor would have paid had he/she not been caught.
See this article by Freedom of Religion South Africa (FOR SA) for more information. However, please note that FOR SA are not tax experts and cannot be held liable for any reliance placed on the above information. Should you have any question and/or queries regarding your tax status and/or obligations, it is best to contact either SARS or a registered tax practitioner.
Nicole Copley, NGO Matters: A practical legal guide to starting up, Juta (1stedition, 2017)
Shelagh Gastrow, Donating to a public benefit organisation: what it means, in Daily Maverick, 27 March 2018
SARS, Tax and Non-Residents. Available on: https://www.sars.gov.za/ClientSegments/Individuals/Tax-Stages/Tax-and-Non-Residents/Pages/default.aspx